India’s Path to Growth

Investment in India may be about to take off, carrying chemical demand along with it. Bureaucracy, poor utilities and raw materials provision, and an uncompetitive environment have for many years undermined India’s huge market potential, driving international companies to more attractive opportunities in China and elsewhere.

Indian GDP growth is expected to be 6.9% this year, and 7%-7.5% next year. India’s GDP is set to expand 43% between 2007 and 2012, according to the International Monetary Fund. India’s population is shifting to cities, which will drive massive demand for infrastructure and chemical products. Only 30% of people in India live in urban areas, compared with 82% in the U.S. About 250 million-300 million people, close to the entire population of the U.S., will migrate to cities in the next 20-25 years, according to the Indian School of Business. India’s polymers market alone is estimated to be worth $25 billion/year, and is on course to double in size over the next five years.

Local companies including Reliance Industries, Gail India, HPCL-Mittal Energy, Indian Oil, Mangalore Refinery and Petrochemicals, and ONGC Petro Additions are expanding petrochemical capacity. Global chemical companies are increasingly eyeing the Indian market and incorporating plans for India into their strategies, as detailed in cover story articles by Deepti Ramesh and Natasha Alperowicz (p. 17).

There are still risks, however. At a high level, they include a possible return of anti-trade policies, counterproductive government interventions, and failure to integrate into the global financial system.

K. Jose Cyriac, India’s secretary for chemicals and petrochemicals, noted in his opening address to the recent PlastIndia event the importance of the chemical sector, which accounts for 14% of India’s industrial production and 17.6% of the manufacturing sector, and is the sixth-largest chemical industry in the world.

The government is taking steps to nurture innovation and provide much-needed feedstocks, including from India’s massive coal reserves. It is also pressing ahead with the Petroleum, Chemicals, and Petrochemicals Investment Region (PCPIR) program to attract investment. A new PCPIR at Cuddalore has been approved but, apart from the PCPIR at Dahej, these sites are failing to function properly for a variety of reasons, including feedstock supplies.

“The time has come for India’s manufacturing sector to lead the future growth of the country’s economy,” Rajiv Kumar, secretary general at the Federation of Indian Chambers of Commerce (New Delhi) stated recently. Is the Chindia opportunity finally becoming ch-India?